Cutting Costs in a Positive Way

Ryanair CEO Michael O’Leary grabbed headlines recently by making a statement in a magazine interview- “Why does every plane have two pilots? Really, you only need one pilot. Let’s take out the second pilot. Let the bloody computer fly it”. When asked what would be done in an emergency he replied specially trained flight attendants could assist.

According to him a flight attendant can do a pilot’s job. It saves costs, as a flight attendant’s salary is lesser than a pilot’s. In his viewpoint this is a good way to cut costs and reduce air ticket price for the low fare airlines. I think my sentiments are shared by the general public. Passengers to save a few dollars would not like to lose their peace of mind while flying.

Unfortunately, while making efforts to cut costs and increase profits, extreme measures are taken without viewing the cultural, social, environment and security impact. The biggest line item in a Profit & Loss statement is employee benefits. Most organizations focus on cutting jobs and freezing/ reducing salary and perks. A survey published in 2009 by Challenger, Gray & Christmas, Inc regarding various methods adopted for cost cutting during recession showed the following three top initiatives:

  1. 67% respondents focused on reducing travel expenses
  2. 58%  respondents initiated hiring freezes and reductions
  3. 56% respondents did permanent workforce reductions.

When layoffs are done it has a lot of impact on the organization culture and future profitability. The employees who were working before were doing something. So what part of the work is not required during the recession? Companies fail to bifurcate the job description into critical, necessary and optional activities.  Focus is on reducing the headcount. Instead focus on reducing the optional activities and improving the functioning of the critical and necessary activities. One must remember there are no easy quick fix solutions to cost cutting.

Approach cost reduction exercise after detailed analysis of costs. Study each line item and its components including the loss contributing factors.  Focus on understanding aspects which are reducing productivity, resulting in stock losses, increasing insurance costs etc.  

To show how each element of cost should be studied I am giving some unorthodox examples out here of improving productive work time of employees while reducing costs of the organization. These should be adopted only after undertaking a detailed analysis of the organization culture, requirement and dollar impact.

Restrict/ Disconnect Internet:

This might sound like a backword move on technology but it is worth exploring. IDC study conducted in 2008 shows an employee spends 2.09 hours excluding lunch for non-work related internet activities, 30 to 40% of Internet usage in the workplace is not work-related, while 75% of all Internet porn traffic is done during the nine-to-five Although, human resources department build in one hour of work-time in the salary cost for non-productive usage of Internet, the actual time is double of it.

A good way to start is to assess whether employees need the Internet connections at work or can access be restricted by filtering sites. Secondly, if they are not allowed Internet connection on their desk, will their morale reduce? In Internet is discontinued, an alternative cyber café can be made available to employees to use in their free time. Employees would also be free to use web on personal cell phones. To keep morale high, consider whether any alternative fun activities can be provided which are less time consuming and cheaper.  

Evaluating this option will increase the number of hours the employee is focused on official work. Simultaneously, it will reduce the technology infrastructure costs of providing free net access to employees, reduce information security threats and minimize the risk of employees contravening intellectual property rights of another organization.

Prohibit Smoking:

I am not being high handed out here because I personally do not smoke. You might be wondering how it is linked to productivity and cost reduction.  Some organizations are prohibiting smoking in office and a special area is allocated as a smoking zone. A smoker depending on the smoking habits takes periodic breaks to visit the smoking area in the office. For smoking each cigarette he/she spends around 10 minutes. So a person smoking five to six cigarettes during office hours wastes at least an hour of work time more than a non-smoking employee.

Health insurance costs for smokers are 10-40% higher than non-smokers. As per 2004 study smoker health cost are higher by $17,500 during their lifetime in comparison to non-smokers. A person who quits smoking saves $ 9500 during their lifetime.

Here the suggestion is to prohibit smoking completely in office or if possible do not hire smokers. This will increase productivity, reduce health insurance costs and decrease absenteeism from office for sick leaves.

Keep Paper Towels in Washrooms:

This might be sounding like a completely bizarre idea. Most organizations now install hand dryers in the washrooms to save costs on paper towels while considering the environmental aspects.

A person using a hand dryer takes 4-5 minutes for drying his/her hands, in comparison to less than a minute with a paper towel. An employee visits the washroom around 4-5 times during the day, so ends up spending an extra twenty minutes drying hands.  Hand hygiene study shows that some people go without washing hands for 38 hours at a stretch. You can say yuck again but it is the truth. So if it is going to take more time and effort, the chances of washing hands are less. Lastly, 80% of the diseases are transferable through touch.  

This one simple act, adds to the productive time in office, reduces health risks and consecutively decreases health insurance costs. Ever thought, a simple thing like paper towels could be so critical in office hygiene and productivity.

If the above mentioned measures are adopted by an organization productive work time increases. On a rough average the additional productive work time for a non-smoker is 1 hour and 30 minutes, and for a smoker is 2 hours 30 minutes. Multiply this with the number of employees and average hourly salary cost, the cost savings will be considerable.

The point I am attempting to make is that cost cutting should be an ongoing exercise in any organization. There are unique perspectives from which costs can be viewed. Wear different hats and brainstorm on the various ideas before implementing.

What do you say, does this make sense?